TRIGGERnometry - "We Have Capitalism for the Poor and Socialism for the Rich" - Mark Blyth

Episode Date: May 27, 2020

Mark Blyth is a professor of international political economy at Brown University and co-author of Angrynomics. Support TRIGGERnometry: Paypal: https://bit.ly/2Tnz8yq https://www.subscribestar.com/triggernometry https://www.patreon.com/triggerpod Find TRIGGERnometry on Social Media:  https://twitter.com/triggerpod https://www.facebook.com/triggerpod https://www.instagram.com/triggerpod About TRIGGERnometry:  Stand-up comedians Konstantin Kisin (@konstantinkisin) and Francis Foster (@failinghuman) make sense of politics, economics, free speech, AI, drug policy and WW3 with the help of presidential advisors, renowned economists, award-winning journalists, controversial writers, leading scientists and notorious comedians. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome to Trigonometry. I'm Francis Foster. I'm Constantine Kisson. And this is a show for you. If you want honest conversations with fascinating people. Our brilliant guest today is an economist and the co-author of a brilliant book of Francis and I have just read and really enjoyed Angronomics. Mark Blythe, welcome to Trigonometry. That's wonderful to be with you. I'm so sorry you couldn't find someone interesting and you got me instead. Yeah, well, you do yourself a disservice, ma'am because as I said, having read your book, I think I'll audience who actually have been clamoring for us to get you on the show for some time. I'm going to enjoy this conversation. But for anyone who hasn't been clamoring for us to get

you on the show, which is not many people, just tell everybody a little bit about who you are, how are you where you are. What has been the journey that leads you to be talking to two comedians on YouTube? All right, short version of that. When I was 13 years old, that's on an episode of I was shoot it was Panorama. And back in about 1981, and, They set up a game show between two economists. They did this shit back then. And one was like this old guy in a tweet jacket and looked like everybody's favorite old lefty professor.

And there was another bloke who was wearing the kind of spiv suit of the era, who was about 30. And he was from the London Business School. The other guy was Manchester. One had this Keynesian model with a billion equations and a household sector and all that. And the other one was a monetarist model. It had six equations in it.

And the right answer was always tax cuts. right now I may have been 13 but I knew horseship when I saw it and I thought oh I want to study this because this seems like fun so variously through Straff Clyde and then to Columbia my PhDs in political science but I study economics as a thing in the world not as a theory of the world because I think it's there for both good and evil and we often weaponize economic ideas to get what we want and use them as justifications but in moments like this this chaos moment of COVID we look to models we look to theories to tell us what to do in moments of deep uncertainty, and that's when they become really interesting and really powerful. So that's basically what I study. My shortest bio says, I study uncertainty and randomness and complex systems and wonder why people believe bullshit economic ideas

despite buckets of evidence to the contrary. Well, that sounds like a perfect setup. So one of the things you talk about with your co-author in the book is the different versions of capitalism. So we've just finished to what you, or maybe not finished, tell us, we've just lived through a period which you call capitalism 3.0. So just tell us, Mark, where were we before the pandemic hit? Just describe for anyone who hasn't read your book who maybe is not an economist.

What was the world that we've been living through? What did it look like? So the most common way that people talk about this is to call it the neoliberal world. I'm not sure if that's the best way to think about it. But essentially, here's how to think about it. When you came out of the Great Depression in World War II, there was one job for governments. It didn't matter if you were left, right, center, or anything. You had to do full employment because you'd been through half a generation of unemployment that resulted

in fascism and the death of 50 million. It wasn't clear that capitalism was going to survive. You had a Soviet Union that had abolished unemployment and stopped the Nazi tanks. It was an attractive offer to everybody else on the other side. And basically, capitalism had to reform itself. And the way it did this was to make full employment the policy target. And we had 20 years, almost 30 years of very good growth, very good growth for workers in terms of real wages. The problem with that very labor-friendly order is that if you basically guarantee maximum employment for a very long period of time, the dumbest guy you know can leave their office and get a better paid job by 4 o'clock. That's going to constantly bid up wages. The way that employers respond is with

prices. The result, inflation, the 1970s. When you have inflation, if you're a capitalist, it's a nightmare. Because if I'm investing and expecting to get a 5% rate of return, if inflation goes to 10%, it might as well take the money around the back of the house and burn it. So essentially, capital went on a capital strike, stopped investing, unemployment shot up. Political parties of the right said, enough, basta, we're not doing this deal anymore. And what did they do? Privatize, integrate, globalize, all of the buzzwords of the past 30 years to create a much more open liberal order.

Now, in many ways, this was actually a great thing. and increased massive per capita GDP growth around the world. But one of its more pernicious effects was median wages and lower-end wages and the developed countries went down. Very simple way to think about it. If you had 700 million people at the global labor pool, your wages are going to go down. It's as simple as that.

So along with technological changes that favored big companies, particularly digital companies, et cetera, we ended up in a classically unequal world. Now, inequality doesn't really matter to most people so long as it's relative. That is to say, I'm going up and you're going up at the same time. But if you're going up and I'm going down, or when you have a big shock like 2008, when the whole buffer system blows up and the banks blow up, if you then turn around and do basically what was capitalism for the poor and socialism for the rich, you bail out those who

have the assets and then stick the cost on everybody else in the claims of austerity policies, which is exactly what happened, then you're going to have a lot of pissed off people. If you then, in the British context, do the Scottish project as project fear, don't ever leave no matter how shit it is. If you then do that again with Brexit, whatever you do, don't doubt whatever the elites tell you because they're the ones that have been making off like bandits for the past 30 years. You haven't, but honestly, this is the best of all possible worlds. Then eventually people get a bit skeptical and they get a little bit annoyed. And also they get the notice of fragility in their lives. And if you add to this the fact that we've got an aging society, right, low productivity

society, we've got huge amounts of technological change that demand that all the stuff we're already doing at work. We have to be more adaptive. We've got a gig economy. We have to be flexible all the time. And then essentially all the costs are falling on to us. And then COVID hits. And what you see is a huge expanse of these tendencies. Because people like me who can work from home who are at the top of the tree, we're not made unemployed. We're made more invaluable, right? People who we call essential workers, they're the ones that are getting paid 10 quid an hour who are risking their lives, whether it's in meat factories, Amazon warehouses, shops, They're the ones that are keeping it going.

And what do you find? Again, this huge dispersal in wages, this huge dispersal in the earnings of firms, it just gets worse. And that creates a very tense and very angry and fractured society. And that's what we saw just before COVID. Remember, Chile, riots, Hong Kong riots, France, yellow jackets, Britain, Brexit, America, Trump supporters, Bernie supporters. The whole place was kicking off. And it was kicking off for a good reason.

becoming harder and harder for ordinary people just to hold their daily shit together and do what they need to do with their families. And they said it past it enough. We're not doing this anymore. And Mark, what you're describing seems to me like a crisis. Do you think that the West in particular had reached a crisis point just before COVID? I think it had, but we're really good at covering it up. We're cover it up two ways. One is emotionally, that is to say, we always put it on ourselves, stick it on my back a little bit more, mustn't grumble, just keep going a little bit. It's fine. things will be okay. And the other way we do that is with credit. We basically did massive credit expansion. And, you know, I don't really worry that much about public debt for the simple reason

that when there's a crisis, people dump shares. They don't want to hold equities. They want safe assets. The safe asset is the government bond, which is why now the British government, despite everything they're doing, have a negative real interest rate on a 10-year debt, which is nuts when you think about it. I worry about private debt, and what we did was layer corporate debt on top of credit card debt, on top of educational debt, and ordinary people's wages weren't growing. Think about coming out of university just before COVID, right? And you're going into a flat labor market, wages aren't rising even for university graduates. You've got possibly 40 grand worth in debt, and your chances of buying a house in London, even if you save every penny you've got over the next 10 years, are zero. Why should anybody think this is a success story?

And I mean, it does sound fairly bleak when you explain it like that. But surely people would argue, look, you know, things have never been better. Look at the technical advances. Look at the way, you know, society has become ever more equal. Haven't things been improving? Or do you think we've actually been regressing? It's a bit of both. My favourite line on this comes from one of Obama's economic advisors where he stood up in

2000, I think it's 2010, 2011. The guy's name's Jason Furman. and people were complaining during the recession then that followed the banking crisis about the cost of living. And he said, yeah, but the cost of things like technology goods are falling all the time. I mean, iPads are incredibly cheap. And somebody shouted out, you can't eat an iPad, asshole. If you're at the bottom end of the income distribution, which in British terms, the bottom 40%, right,

you're not earning any more than 18 quite an hour. Now think about all the costs that you have to put into a normal person's life. yeah, it's great that technology has made us more connected. But if I've got three kids and I've got to get them off cell phones that look like this and I've got to pay for those plans to keep them connected, a lot of financial stress out there that goes of this stuff. Mark, one of the points you make as well, just as we wrap up talking about prior to COVID, is I want to just briefly talk about the crash and the crisis of 2008. Because one of the things that I've often been talking about is we're massively in. debted as a country. But one of the things you talk about in the book is actually this idea that we spent too much as people, as individuals, and that's why we're so indebted as complete rubbish. Actually, what happened is we bailed out the very people who got us into trouble using the money of ordinary people. So talk to us a little bit about that. Yeah, sure. I mean,

you just nailed it right there. If you look at average OECD rich country debt from 2000 to 2008, it's going down because economies are growing. And so long as your economy is growing faster than the rate of growth in your debt stock, the debt shrinks. So think of it like a fraction, right? Numerator denominator. Your denominator's debt.

Your numerator is your economy. If your economy is growing faster than your debt stock, it's going to shrink. Right? So that's what was going on. Then there's an almighty banking crisis and you basically buffer the recession, bail the banks, provide them with equity,

do all the stuff you need to do. You get a 30% jump in G. in terms of debt to GDP. And then George Osborne comes out and goes, oh my God, Labor's been spending like drunken sailors. It'd fuck all the do with them. It was bailing a banking system. And if you think that's true, go check every other country's balance sheet. Because exactly the same thing happens. The Americans go up 40%. Everybody with a big financial sector ends up bailing out and it costs them by 30 or 40% of GDP. That's where all the quote unquote debt came from. Now, if you're on debt, let's stay with that for a minute, right? Oh, this terrible debt.

It's the worst thing ever, blah, blah, blah. Who's buying all that shit? It's the rich. It's the 1%. It's the banks. Because at the end of the day, government debt is the bottom of the credit pyramid. It's what you then lever up

to do all the other things you want to do, from lending for a mortgage to derivatives to anything else. There's never been a failed bond auction for sterling. There's never been a failed bond auction for US treasuries. So the same people that are holding this stuff and making an interest rate of it,

at least until very recently, are the ones who are going, oh my God, this is terrible, right? That to me just, oh, hang on a minute, right? Let me see, you're the one that's holding the assay and you're telling me you're terrified of it. Yeah, that's bullshit. Look, I spend a lot of time telling you what's wrong with the world, so let me tell you about something that's actually right.

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The craftsmanship is real. These are mass-produced objects. Someone has put thought into them. I'll be honest. I'm not the person who thinks carefully about where he sleeps. My dating history will tell you that. I'm the person who's been on the same mattress for eight years and called it fine, but the older I get, the more I notice that fine isn't actually fine.

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We have socialism for the rich when they fuck up. We bail them out. Using the money of the ordinary people who've been losing out this whole time. And that's where you get more inequality and more unfairness and therefore more anger. And then to balance the books, what you do in Britain, and anybody wants this, I can send up the sites to the work on this, you do things like Preston Council up north. They lost almost a third of their budget during the austerity years. What does Preston make?

Not a lot. It's one of the most depressed areas in the country. How much austerity was done in London? Practically none. What's the only bit of the country that's growing? London. I mean, it wasn't just across incomes. It was across geographies.

the way that this played out. And it was a lot of the anger behind Brexit. You remember the bedroom tax? I mean, let's just think about how fucking insane that was, right? Basically, you live in a shit part of the country. You have no assets, but you have a bedroom. I'm going to use that as an excuse to basically cut whatever benefits you've got. Listen, everything, I mean, we look back on that period.

It's craziness. All right. So that's where we were. Now take us through to COVID. COVID hits what now, what's happening now? So there's a film that I can send you guys, which is I'm going to get out next week, which you can stick up on the website for the podcast. And the way I explain this, the filmmaker in Spain liked it so much that she made a film around it.

I call it the Volvo and the Mustang. So bear with me and I'll tell you the story. I drive a Volvo because I'm a white bourgeois git. It's true. I've also got a golden retriever. I have literally become everything I hate, right? So this Volvo is covered in airbags. It's quite fast, but you don't drive it fast because it's a Volvo.

And it's got loads of airbags. If you crash in it, you'll probably survive. Basically, it's kind of the automotive equivalent to a European welfare state. Costs of fortune to run, loads of safeties and redundancies. If you crash in that thing, you'll be fine. Here's the American economy. And to a certain extent, the British economy. It's a five-liter Mustang GT.

Everything's great so long as it's going to pull, pelk down a straight road, it's in gear, there's no bumps on the road, and you're just going, because let's face it, that's a lot of fun. If you try and break that thing, if you tell the entire economy to slam on the brakes and go down for three months, boom, the whole thing just falls apart. If you think about this in terms of what economists call growth models, right? What's the underlying bit of what's called gross value added? You tickle, if you will, to get growth in the economy. For the Germans, it's autos, selling BMWs the rest of the world, right? To the Greeks, it's getting people to come into the country

and sit on their beaches and sell them Retsina, right? That's how you do it, right? For Italy, it's tourism around all the Roman monuments. What is it that America does? It's 25% of the global economy. It does a little bit of everything, but it's tight. It's tightly coupled. 80 million American workers are hourly employees.

None of them have any statutory sick pay or benefits. You tell them to go home for three months, and everybody goes, hey, isn't it the case that 40% of Americans would have a real trouble getting 400 bucks together at short notice? Yeah. Well, that was three months ago. So they're now screwed, right? There are five mile long queues for food banks in the US at the moment, right? People are driving there. But the only reason they're driving there is because they all hire their cars, they lease their cars. If their unemployment benefits fail, if the economy doesn't pick up, that SUV is going to go back

to the repo guy. How are you going to get to the food bank at that point? All the wheels come off. European systems, they cost a fortune, there may be a disincentive effect, they don't create the type of dynamic economies you get with the Mustang, but when you crash, you'll probably survive. That's the world of COVID. But I suppose a Mustang's better for picking up women than that. Oh, definitely. Well, it depends on a certain type. If you're signaling lifetime earnings, safety and security, a top line Volvo is definitely it. If you're like, let's go, mental, then yes, I suppose a Mustang would be that. Oddly enough, I own both. We know which one other Francis prefers. Go ahead. Yes, exactly. There's no doubt about that. But so what you're saying, really, is that America is teetering on the edge of a precipice at the moment, because if people can't eat, that's, and as somebody who comes from a Venezuelan background,

that's the moment when social unrest happens. Oh, yes, exactly. And we're running a a giant natural experiment now by basically opening up. And the reason we're opening up is because you can't shut this down. It's the Mustang, right? It's not a Volvo. So you open all this up and then you remember things like, well, Texas, right? So Texas, only 18% of Texans had no health insurance. Everybody else has their insurance through their employer.

30% of that remainder are now unemployed, which means huge amounts of people who are no longer social distancing, who may be getting infected, have no health coverage. That's going to go well. Now, it may be the case. We simply don't know. Go back to that numerator-denominator thing and think about COVID, right? If your underlying rate of passive infection,

asymptomatic infection is much wider than we think, then all these people go down and doing shit just now is kind of brilliant. Because what it's doing is it's going to show us that's the case. And that means that the denominator expands, so the numerator shrinks, so lethality goes down, which basically makes everyone go, hey, it's not so down. We'll be fine. We can open the schools. We can get back to work. You can start up the Mustang, right? If on the other hand, four to six weeks from now we find in Texas, Georgia and all these places that are now basically abandoning the whole shing and going for it, that the models that say hardly anybody's been infected, that this is hyper-infectious, that 10% of cases result in hospitalizations, wow, then you're in trouble because then you're going to have to shut down the economy again. And you don't have any of those European-style airbags. So how are you going to feed people? You're going to put them on unemployment through June, take them off June and then put them back in September.

What are they going to do in the interim period? Because if you could open the economy, but what happens if nobody comes? Because everyone's freaked out. Wow. And so what would that mean later on for the Trump election, do you think? Because he's banking on the fact that, you know, his major card is that, hey, the economy is great. America's working. Let's go again.

If he gets it right in the sense, it's a binary bet. It's 50-50. Either you open up and you're okay or you're terminal anyway, right? So he's got nothing to lose in terms of terminal anyway. If he continues on this, it can only be bad for him. That's social distance and all the rest of it. So you might as well go for it. If he goes for it and he turns out he's right, he wins.

No doubt about it. Because at that point in time, people turn around and go, God, there you are again, those fucking elites. Oh, yes, science. Yeah, he didn't know shit because, look, we went out and did stuff and it was fine. Right, you totally see how this plays out. And with justification. Right?

If, on the other hand, it goes pear shape, right? Then you've got a real problem. Let's say that there's a big surging cases through the summer. And there's a second wave and it really shuts everything down again. Do you even have an election? What do you do with precincts? There's huge battles over here about the right to do mail-in voting. California is in the crossfire for this one today.

Other states will be trying this. There's a lot of contention around this election. So in terms of what happened? if we open up and things go well, then Trump wins. If we open up and things go badly, I don't even know if we have an election. That's really interesting. Mark, you mentioned the elites. Let me ask you this.

And look, obviously, you're not a medical expert. So I'm not asking you from the medical point of view. But do you think one of the reasons that, you know, we've taken what are largely unprecedented measures with this lockdown. And that's a word that gets bandied about a lot unprecedented, right? But we've taken these measures. do you think we would have taken these measures quite so readily had it not been the fact that the people who are making them are all middle class like the three of us and are quite happy to sit

and have, you know, we're working from home, etc. Like, do you, some of those people that were making those decisions of the people who are unemployed now, do you think we would have been quite as keen to go into lockdown? That's a really great question. I mean, part of me wants to say, no, we wouldn't. And I think that that's kind of true because the people who do make these decisions can work from home and have the economic resources and family networks and other things to make it happen. Even Dominic Cummings had to basically hand off his kids to his parents 200 miles away, right? But he could do that and he probably drove there in a Volvo, right?

So, you know, if you have those things, then, yes, it's a lot easier. But here's the question on the other side. It's not as if people who don't have those resources are inveterate gamblers. If at the end of the day, one of the big correlates of lower income tends to be poorer health, tends to be weight gain, tends to be underlying comorbidities such as diabetes, etc., particularly amongst minority populations, then would you be willing to say, hey, these guys, we're not going to do that lockdown thing. You should just go back to work.

But there's a pretty fair chance one in 10, on average, we'll end up in hospital. From your demographic, maybe even higher. and you might actually end up dead. You want to go for it? So again, the class skewing this and the income skews is incredible. People like us are highly unlikely to die from this.

And what's even more crazy in this one is I downloaded the ONS data, the Office of National Statistics for the UK. I encourage everybody to do this. Amazing. Just type in ONS, UK COVID-19 death, right? You'll find it. Open it up in Excel and then just look along at the age profile.

This is the bit that blarets. me away. And this is the April figures. Do you know how many people under the age of 45 have died from this? It's like 200 or something, isn't it? Yeah, it's 500, right? And then, so what's the total death figure at the end of April? It's like 30,000. The age skew is incredible, right? Guess what also skews with age? Poverty. All these things are tied in together. So making a simple decision about this is never simple. and the one thing that I'm really concerned about, Mark, is the long-term implications of this for the British and the American economies.

I read a stat, I think it was a couple of days ago, that Britain spent more in April than it did in the whole of 2019. And you're thinking, I'm thinking to myself, this is simply not sustainable. We can't carry on like this. Well, yes and no, because, the Americans have a great phrase for this, which is the most attractive horse in the glue factor out. So here's what happened. On March 18th, when the British government unexpectedly

came out and said, we're going to support 80% of wages, which is exactly what you should do, because giving people checks and all this sort of shit is just clumber something doesn't work, right? Now, it's on the assumption that this will last maybe three months and then we can get back. That's an open question. That's where I think sustainability comes into it. But here's what happened. Sterling fell 5%. Pound 1, 5%. And the guilt market, the government bond market, prices went down, the yield started to spike. And this is almost as if the financial markets were like saying, you're going to spend how much? Are you kidding me? Right? Within two hours, they stabilize. Why? Because everybody else was doing exactly the same thing. So it's all relative.

And at the end of the day, do you want to buy stocks just now or do you want to buy bonds? Because at the end of the day, the government in the United Kingdom, regardless of who've running, it will be there in five years. Will Virgin Atlantic be there in five years? Will it be there in five months? What happens to Google if basically at the end of this we decide that it's too powerful and we break it up? Or what happens to Amazon if we decide that basically their warehouses are public health hazards and we shut down their business model? At that point in time, those equities lose value. And if we're still in a panic, the fear index is simple.

people want debt. They want to hold those bonds because they are promises to pay, fixed income over a period. So so long as you basically think the dollar has value, sterling has value, and on a relative basis, it does, because what else you're going to buy? You're going to buy euros? What happens if the Italians block the whole project? You can't buy any Chinese external assets. They won't let you. So at the end of the day, this is sustainable because everybody else is in an unsustainable position for relative trade.

me ask you this because we talk to economists a lot. I'd like to think I'm reasonably intelligent. I studied economics at university. I should be able to understand this. But every time we have this conversation, I've always got this thing in the back of my head as I'm looking at it as an ordinary person. I'm going, how can we forever spend more than we earn? And then suddenly borrow more to bail out the banks. And then 10 years later, we're now bailing out ourselves. We're paying people not to work. Sure, like if I'm an ordinary person, I'm thinking that doesn't make any sense, does it? Right. Well, I mean, this is what I wrote about the book before last, the austerity book. You're not a household. Basically, you don't get to print the asset you spend.

And the way that governments work is they tend to spend things and then retrospectively raise the taxes to quote unquote pay for them. If they don't pay for them, they're on a deficit. To cover the deficit, the issue debt, which is why you get debt, if you have too much debt and people can swap out of it because they don't think it's going to be paid back or there's going to be what they call a haircut and its value, then yeah, you're running risks. But in the current moment, everybody's screwed. So if you switched out of Brit, what are you going to do?

You're going to buy some euro debt? Probably more hammered. You're going to buy some Dutch debt. It's too thinly traded. A Danish debt is too thinly traded. There aren't enough bonds, right? So on the one hand, you're right. You can't pile debt upon debt.

But what actually cures debt at the end of the day is growth. Now, my worry comes in on this side, right? So I don't really worry about five years from now where the United States will be. This will be a horrible period. Don't get me wrong, right? But I don't think the US is going to disappear, even if Trump is in charge, right? Where do I worry about is Italy. So Italy is a country that has the third biggest bond market in the world, and it's got about

the 11th or 17th biggest economy. That's not good, right? And they've spent, like everybody else, an extra 30% because of corona. So their debt's going to blow all the way out. Now, they don't have their own currency, which means that they can't bill their own banks, which means that they are dependent on the goodwill of the ECB buying Italian debt to keep the yields down. The German constitutional court last week said, you guys and the ECB shouldn't do that shit. So they've made up a new thing this week, which is the Franco-German pact,

that basically says they're going to issue new debt through the European Commission, and we're going to help the corona-affected economies with this. That's all kind of like smoking mirrors and rearranging the dexias on the Titanic. At the end of the day, Italy is a huge problem because unlike Britain and the United States, it doesn't issue its own currency. Therefore, it doesn't actually control its ability to bail its own banks or bail its own economy. If you have that sovereign capacity, you can fuck it up. Don't get me wrong, right? You can go full Venezuela. But remember, to go Venezuela, you need to be reliant for 96% of your income on one thing called oil, and then when the price goes down, you're totally stuffed. That's not the British economy.

So it's not quite as black and white as that, particularly in this current moment. I worry about if you have an economy that doesn't grow fast enough and you have a lot of debt, you will end up in trouble. If you have an economy with a lot of debt, if you can grow fast enough, eventually it shrinks. So I guess the next question leading on to this is what is going to be the implications for the EU because there's already a lot of discontent, you know, swimming around in countries like Spain, Italy, Greece, we've seen with the rise of populism. Do you think that if things go badly in Italy that certain parts of the EU could disintegrate? So I was not someone who thought Brexit was a great idea in the sense that the most pressing problems of the British political

economy would be addressed by leaving the EU, right? You're better off out of it. Because that's a shit show. It's a shit show. That's what I always said. Francis and I both voted Remain, but the one thing I always tried to remind people on our side is, you may think that leaving is not a good idea, but what you're failing to take into account is the long-term consequences of staying. What's the cost of staying? So the first canary and the coal mine for this was the de-fenestration of Greece through its banking system in 2015. Remember that summer when they were just limited to how much great people could take out of the ATMs just to totally undermine the government, right? So plain pure politics, right? Now, think about Southern Europe as a whole. They've barely

come out of a 10-year-long recession, right? How many Italians have you met in London? Loads, right? Why? Because they're not staying there because there's no jobs. So they all move to the countries that have the jobs, which means that their societies are older, the dynamic part of their population is already gone. They've got too much debt. They haven't grown in 20 years, right? And then the Eurocrats basically come along in the corona moment and say, well, you know, we can't really go around bailing people out. It's like, well, hang on a minute, mate. The reason you're selling BMWs to the rest of the world is precisely because we're getting squeezed here in the South. You're running what economists call the external surplus. That means there has to be an internal deficit somewhere, and that's what

we in Italy and France and Spain are men to run. You've got all these rules that say everyone has to run a balanced budget, which means that Italy's been running a surplus, budget surplus, for 20 years. Now, for all the people who say debt's a problem, you should run a surplus, look at the Germans. Well, actually, the Italians have run a surplus twice as long, and they haven't grown in 20 years. So your debt's not your problem. It's your lack of growth that's a problem. And how much responsibility does the euro have for this situation? Because to me, I'm not an economist, but to me, you've got all these different types of economies, like you said, based on certain industries, and they've all got the same currency. That to me seems like a nonsense.

Yeah, absolutely. And they've all got one interest rate. That's also a nonsense. There's absolutely no way that the interest rate that they've got is low enough for the Italians, and it's probably too low for the Germans. So it's, look, the one way to think about it is you have national economies because they adjust to shocks in different ways, right? So when you're hit with a big common shock like COVID, right? If you are national economies with national currencies, you can do your own thing. We, the Americans, certainly do their own things. We've fucked up. royally, but we can do our own thing. If you're the Italians, very limited in what you can do because you don't have that printing press to respond to it. It's more rearranging those already stressed deck chairs on the Titanic. Then you think about the fact that you've got all these different business cycles, etc, that are linked to each other, and they become super linked because of the Europe. So the countries that are growing, that grow in a certain way like the Germans and the Eastern European countries, basically the supply chain goes from Eastern Europe into Germany, it's assembled as autos and machine parts and then sold to the Chinese and the Americans.

That only works for them. That's not what's going on in Italy. They don't have a growth model. Would it be a good idea for them to get out? Yes, but then you get the Hotel California problem. You can check in, but you can never check out. So imagine, Constantine, that you're an Italian with money. Stop stereotyping me.

I know I look Italian, but... Believe me, I know Italians that look like Francis. They're not all as suave and handsome as you are. Anyway, I love the way you managed to praise me and insult Francis in one sentence. That's what we like. While making him feel good, which was even more bizarre. I'm Italian.

You're Italian with money, right? And you're Italian and basically you're unemployed. You don't have any money. And along comes some populist and says, Basta, we've had enough, let's get out of the euro, because then we would be able to grow, we'd be able to devalue, we'd have her own currency, we could bail her own banks.

You go, yes, that's brilliant. You say this is the worst idea I've ever heard, because all the assets that you have are in euros. So what you're going to do is you're going to go to Germany and open up a bank account because you can as an EU citizen. And you're going to move all your Italian euros, which are euro euros, into a German bank account. And that means when the Italian government comes in and says, we're going to have a new lira, you're going to say, yeah, but you're not making it out of my bloody euros. So this problem of capital flight within the common currency the minute you try this. estimates that Simon Telford is an economist and I did for this for a few years ago, the Italians have probably destroyed between 40 to 50% of national wealth and national savings

if they tried to exit the euro. Wow. Yeah, exactly. So basically, you're checked into the Hotel, California, and you find out you're an abusive marriage. So essentially, it sounds like, I don't mean to use technical language, but it just sounds like they're fucked either way, really. Well, you know, we don't have to stress the technical aspect. of this so much. But I would say that

they're not in an ideal position. How about that? You're running for office anytime soon. That was the most political answer. Well, I've been watching, because you know, I've been watching, because everybody's watching shut on lockdown. I started re-watching all of Yes, Minister. Yeah. It's actually just as good now, and you could almost, there was one episode I was watching, I was like, holy shit, that's the day. This stuff never changes. So what are the long-term implications for Italy, for Spain, for Greece?

Is it just going to be that they're just going to continue to deteriorate? Because isn't that unsustainable? You can't keep doing that. I think that's pretty much it. And a few years ago, Joe Stiglis, the economist, suggested that you have a dual euro, right? Northern Euro or Southern Euro. I don't know how you get there, but if you could wake up overnight with like two different currencies, with two different relative values, it would actually like probably be a good idea.

the problem is getting out. It really is a bad marriage, right? Because at the end of the day, even if the northern Europeans are like, we have enough of you people, you don't grow, you're always needing bailouts, blah, blah, blah. All right, do the other way around, right? If you say that too loudly, the markets look at Italian debt and go, they're not going to back this shit anymore, are they? And if that happens, you will get that huge yield spike that even the ECB won't deal with, and then the bottom falls out the Italian bond market. Given that that's denominated in euros, what's that going to do to all other euro denominated debts? So I can threaten you, you can threaten me, but it's a mutual suicide part.

Fun and games. Look, enough about the Europeans. We left for a reason. Brexit means Brexit. Exactly. Brexit means let's get it done. My favorite one is get it done because it sounds so good, but I'm not sure what it actually means. Get it done means now we'll spend two years talking about what we actually want to do because we don't really know. Right. Well, we're about to find out, or maybe not, who knows, what it means. But you said when we were talking about the impact of the coronavirus, you said the next period is going to be horrible. What do you mean by that, Mark? What are you talking about?

All right. So think about it this way. And this is particularly the United States, but it's true everywhere. But other places are Volvo's and have better airbags, right? So do you guys ever get therapeutic massages? Yeah. Yeah. I don't know, Francis, not that smile. Immediately he thought happy endings. A minute I said that. I've just got to look. It's not more cold. Regardless of whether it's therapeutic or therapeutic.

With COVID being at, let's say COVID is active for two years, there's no miracle vaccine and there's multiple waves. You're never getting another massage. It's just never going to happen, right? In terms of the models that are reasonably good in terms of how these things spread in specific areas, restaurants are shit. because you sit for an hour and a half

and it can confine space with poor air circulation. So that's bad. Let's see. Movie theaters. Just sit in there with hundreds of people coughing and spluttering into the air. That's a good one.

So when you have, like the US and the UK, very, very large service-driven economies and a lot of those are personal services that are relatively low-wage employers and a huge number of them don't come back because the US's current 22% percent unemployment, which is insane, is massively concentrated in those sectors. So if we are in that second world where the lockdowns, the end of the lockdowns don't work, and we go into that,

every sector is affected, but at the same time, some sectors are going to be massively affected more than others. All right, but let's hold on Mark, but that's a very, very pessimistic view, at least from what I'm seeing at this point, in terms of the medical situation. I'm not sure it's going to go that way. So let's say that we start to open. up, the infection rate goes down progressively by September, October. We are well on our way towards being back to where we were before. Do we avoid a disaster then? Yeah, absolutely. We do, because what's key here is the length of time that you do lockdowns, or you have to do it two or three times. If you have a second wave or a third wave, think of the behavioral response.

Just now, I'm a little bit skeptical about going out for a pint, but I'm really well. I'm really want to, right? I'm a wee bit skeptical about going to see my beloved Everton next time I fly to the United Kingdom, but I really want to. If you guys suffer three waves of lockdowns and there's food riots in the streets, I'm not going to do any of that stuff. So it's all about how long it lasts the number of waves and the behaviour response. If we get one, everybody puts a discount on it, boom, we'll be back. It's fine. Maybe not to cruise ships, because they were giant floating petri dishes of sickness anyway. They were just different bugs. But to everything else, yeah, that can pretty much come back. So I really hope that that's true. But if it's not, then that

behavioural response is going to tap in. And a lot of those jobs in a lot of those sectors simply aren't going to return. And they're all concentrated at the back end of the income distribution. That's the problem. If you were stuff enriched people, they have assets. They can liquidate them. They can do stuff. They're mobile, right? Your poor doesn't work like that. And so what are going to be the implications on society then? if that happens. That would be pretty shit, won't it? But look, I think at this point, I mean, we don't know for certain,

but it's not looking like the most pessimistic scenario will play out. No, no, absolutely. We don't know yet. But then again, you know, you didn't bring me on for my sunny disposition, right? I am from Dundee. We're not exactly known as the happiest people in the world. Sorry Dundonians, if you're watching, you know it's true. But, no, I mean, this is how I think about it.

I tend to think about what's the world. the kind of the, if you will, in the distribution, the tail. What's going on in the tail? What's the most, what's the stuff that can really hurt you if you're not paying attention to it, right? I've been deeply affected by Nassim Taleb over the years, not just the black swan, the whole way that he thinks. And I tend to look far out into the tail and say, okay, if we end up there, how bad can it get? And what do I need to do to think about how to get away from that shock? So, you know, that's where this conversation transformed. I hope I'm completely wrong. I'm one of the few economists you'll ever meet

who's delighted when he's wrong all the time. Yeah, that makes sense. But with this, let's say we're not looking at the tail, we're looking towards the middle of the most probable scenario. You can't do that. You don't know the distribution. That's to the left point. Right.

We don't know the distribution. All right. Well, just humor me. No, I get it. We don't know. But let's just go with me on this, which is, let's say, broadly speaking, September, October,

but we're well in our way. There is no massive second wave. We find that most people or a lot of people have already had it. We eventually get to this evil herd immunity that everyone misunderstands, etc. But we've got enough people that have had it. We're not catching it again. We're all in our way. What is the impact of the economic measures we've taken so far? Are we going to see another bout of austerity, which according to your way of thinking is counterproductive anyway? Are we going to see taxes go up, spending go down? Or does the government need to just try and grow their way out of this? So the way that Anglo economies usually adjust is through a combination of guarantee the banking

system to keep payments going. Austerity on budgets to basically stabilize debt stocks and then unemployment. And that works. It's brutal. It hurts some people more than others. But that's kind of our model. That's how we do it. The Europeans don't do that.

They have bigger and different airbags. They basically have less unemployment. They do it a little bit through debt, but mainly they do it through basically hiding unemployment by declaring people early retirement schemes and all this sort of shit, right? And then more generous benefits. France is the typical example of this. Now, let's say that we play your scenario out. Then there will be a dramatic and rapid recovery in the Anglo-American economies.

At which point in time, austerity would be totally kind of productive because, again, if you're G, the rate of growth in your economy is greater than R, the rate of growth in your debt stock, it's shrinking anyway. So if you then start cutting spending, you're just going to slow down your rate of growth. But that's the kind of bullshit stupid stuff we do, so we'll probably do it anyway, right? In terms of the way that, really, no good idea goes on genuflected. So, well, let's see, what's happened to the Europeans? For Northern Europe, if the Americans recover, they start buying BMWs again so long as Trump doesn't stick tariffs on them. And if China recovers, do the same thing and the Europeans will sell to anyone so they don't care. So that's, you know,

Northern Europe will do reasonably well out of that. The big problem, once again, is Southern Europe. Italy went into this with 12% unemployment. No growth for 20 years running a budget surplus. If you have then, I've got 30% unemployment and you basically say, right, lads, now let's have a big austerity binge. I'm opening a shirt factory in Italy. There'll be one color for the shirt, and it's brown. That's the political response you get. Hey, sweetie, your mother showed me this Carvana thing for selling the car. I'm going to give it a try. Wish me luck.

Me again, I put in the license plate. It gave me an offer. Unbelievable. Okay, I accepted the offer. They're picking it up Tuesday from the driveway. I haven't even left my chair. It's done. The car is gone. I'm holding a check. Anyway, Carvana, give it a whirl. Love you. So good, you'll want to leave a voicemail about it. your car today on Carvana. Pick up fees may apply.

Wow. So, I mean, that is a very, very worrying situation where you're essentially saying that we're going to see the rise of fascism again. And how do you do? It's only a limit. They're not very good at it. They can't really get organized. It'll be fine. They'll be nice brown shirts, though. Very well-ty. Very well-tailed. And in fairness, Mussolini did make the trains run on time. So, you know, there is a payoff on some level. And what do you think it's going to be the West, we've talked about this with quite a few economists, but it's always good to hear your opinion. What do you think is going to be the West's reaction to

China? Do you think it's going to be business as normal, or do you think we're going to see a backlash against the CCP and the Chinese? So the EU reaction is going to be one of continuing to do the kowtow, by which I mean, if you go back six months ago, the Chinese threat and German car exports in retaliation for not doing Huawei. And the German. folded. Just a few weeks ago, something else happened, which was the EU was going to be critical of the handling of the virus crisis in a report. The Chinese got wind of it and said, don't even think about it. And they went, not even thinking about it. That's it. The Brits are committed to basically backing out of the Huawei stuff. So what you're beginning to see is, and this is regardless of whether

Trump's president or not, what tech people call the splinternet rather than the internet. It's going to be our tech versus your tech, our standards versus your standards. And that's the way that the world's going to go, regardless of Corona, regardless of Trump, regardless of anything else. At the end of the day, the story on this I prefer comes from a guy called Herman Schwartz, or at least this is my version of what he says. It says, look, when you think about the global economy, you're thinking about half a dozen firms in different sectors that are really big that earn all the profits. The way they do this is through huge long global value chains that manufacture here and assemble there and do all that. and hide their taxes somewhere else, right?

Those firms are incredibly powerful. They control 80% of the gross value added in the world, right? That's where they make all the money. Now, most of those firms are Americans. And if that's the case, the reason that you're willing to tolerate multi-trillion dollar deficits, the reason you're willing to invest in American stocks is because they grow faster than everybody else. And they do because they control the intellectual property rights and the patents that make that extraction possible. China is different from Europe. Europe has its own standards. It has its own

model. The Volvo is not the Mustang. They're building their own Mustang. They want to have the standards. They want to control the intellectual property rights. They want to be in charge of that space, hence China 2025, Belt and Road, all the rest of it. So they're out for your IPRs, essentially. They want to set the standards. They want to challenge you. If you do that, that is a direct threat to the American growth moral. Doesn't matter who's in charge. So basically, bumpy road ahead no matter what. Oh, really? And what do you think will be the American response there for? Do you reckon they're going to double down and say, right, you know, we're going to withdraw from China. Our companies are going to get out. We're going to go to other places. That's really hard to do. So I was talking to somebody who actually

knows how this stuff works. And she gave me the example of a cotton bud factory because I'm thinking about medical supplies. She's like, you know, cotton buds, swabs, all that sort of stuff you need for COVID? Right. It takes you about three years to build a factory with a certification to make that shit. Just for cotton buds, right? You spent 20 to 30 years moving all that tech abroad. You don't bring it back in three months. Also, it's constantly evolving. By the time you get it back, it's probably redundant. So it raises huge questions for the profitability of firms, how you actually manage the stuff and what you do with it. So it's not clear that you can turn off globalization that way, because we do have a global economy. I like to put it in the passive voice.

Globalization is upon you whether you wish it or not. It's not a choice. It's just there. And you can choose at the margin, but that's about it. So you've got fractious politics. You've got a Chinese Communist Party that's always said that we are legitimate in the eyes of our people so long as we're growing fast enough to basically legitimate their ambitions. that growth is going down.

This year is the first year they don't have a growth target. The cult of Xi is back. It's very much one guy, personalist rule, authoritarianism. The move into Hong Kong could presage a move against Taiwan. If you do, then you really are calling the Americans bluff on this one. And do you really want to get into a shooting war with these guys? Because when they've got their backs up against the wall, the Americans will react very badly.

So, yeah, it could get very, very fraught very quickly. all right mark well we've got to let you go unfortunately but next time you're in the UK let's let's have a if we're allowed at that point let's have another interview in studio but before we do let you go we've got one more question for you go and it's a question we always finish with which is what is the one thing people aren't talking about but they really should be talking about is it possible to lead a full and meaningful life without Premier League football and the answer of course is no I think that's exactly right.

I think it's going to be really difficult. I'm utterly amazed that when I switch on the BBC news on my phone, I hit the sports link and they still have pages and pages of stuff, but nothing's happening. Yeah. It's amazing. And then I read it and I feel so empty and sort of like contentless and sort of just like, and then I wonder if I'll ever get rid of that feeling.

There's a very, very sad insight into what middle. age for men is like, and that's all three of us, I'm including that. And we all agree on that, that this is actually a major problem, absolutely. Well, I'm a West Ham fan, so actually it's probably better, mate. Yeah, fair enough. And on that very happy note from me, as a fellow of a tonian, I'm delighted to hear there's someone worse than us. Mark, where can people follow you to check out your work and also tell everybody where to get the book when it comes out? At M. K. Blythe, at Twitter.com. I have a website somewhere,

but I don't think I've updated it in forever, so don't even bother with that. Just M.K. Blythe on Twitter, and you'll find me. And the book is available everywhere. Waterstones, go for it. We're actually on Amazon as number one anticipated releasing political economy. So go pre-order and make it minus one.

That would be even more amazing. Now, we do thoroughly recommend that both Francis and I really enjoyed reading it. So make sure you get angronomics. And thank you very much for watching. we'll see you very soon with a live stream or another brilliant interview.